Lobbyists Gird for Battle Over Microsoft’s Yahoo Bid

Andrew Ross Sorkin|The New York Times

Tuesday, 5 Feb 2008 | 9:18 AM ETThe New York Times

SHARES

It could be payback time.

An expensive legal and political campaign last year by Microsoft helped delay completion of Google’s $3.1 billion bid for the online advertising company DoubleClick. Microsoft filed briefs against the deal in the United States and abroad, testified against it in Congress, and worked with a public relations firm to generate opposition.

Now Google is preparing to strike back.

With Microsoft bidding nearly $45 billion to buy Yahoo, Google has begun to lay the groundwork to try to delay, and possibly derail, any deal. Google executives have asked company lobbyists to develop a political strategy to challenge the acquisition, which could threaten Google’s dominance of Internet advertising. Google’s top legal officer posted a statement Sunday that criticized the proposed deal.

Still, the looming legal and political battle has yet to fully emerge and is likely to stay below the radar at least until the control of Yahoo seems clear.

Moreover, some antitrust specialists and government officials said Google might tread carefully in opposing any deal since it could backfire.

Google dominates the market for Internet advertising, and to the extent it portrays the deal as encroaching on that dominance, it could help make Microsoft’s case that its acquisition of Yahoo would create a more competitive marketplace.

Lawmakers are responding to the takeover attempt. Representative John Conyers, Democrat of Michigan and chairman of the House Judiciary Committee, said he would hold hearings to examine any proposed deal.

And Senator Herb Kohl, Democrat of Wisconsin, who leads an important antitrust subcommittee, said he was interested in the proposed acquisition. “Should Yahoo accept Microsoft’s offer,” he said, “the subcommittee expects to hold hearings to explore the competitive and privacy implications of the deal.”

Google and Microsoft have the ability to wage a major political fight, the kind appreciated in Washington for the money it generates in lobbyist fees and political donations for lawmakers. Both companies began their Washington operations as one-man bands but now have large presences.

Microsoft enlarged its Washington staff in the late 1990s after it came under antitrust assault in the Clinton administration. Its lobbying shop is considered among the most effective in the capital, and it has retained more than 20 law firms, lobbying companies and press relations operations for an array of political and regulatory issues.

Google’s Washington office is less than three years old and has been steadily growing. In fall 2006, it established a political action committee and has since used Democrats from the Podesta Group lobbyists, two former Republican senators — Connie Mack and Dan Coats at the law firm of King & Spalding, and the law firm of Brownstein Hyatt Farber Schreck.

Google recently moved to larger quarters, with 27,000 square feet of space including a game room, open work areas, free lunches and environmentally friendly features like recycled rainwater — a smaller version of its Silicon Valley headquarters.

While Microsoft and Google have been occasional allies in Washington — they have worked together on intellectual property legislation and issues of open access — they clashed last year on legal and regulatory fronts.

In addition to the fight over DoubleClick, Google lodged a complaint in antitrust proceedings against plans for Vista, Microsoft’s new operating system. Google said these were anticompetitive because they unfairly discouraged the use of Google’s desktop search program. By lobbying in state capitals, Google persuaded prosecutors to intervene on its behalf. Ultimately, Microsoft agreed to modify the operating system to make it easier for users to decide which search application they wanted.

Should Yahoo finally agree to be acquired by Microsoft, a focus of the political and legal debate will be the products and markets that could be affected. Microsoft has said the acquisition would increase competition in two related and large markets: Internet search and online advertising. Many ad industry executives, who have watched Google’s rise with some trepidation, agree.

But Google wants the focus of any antitrust debate to shift to issues other than search and advertising. In a statement posted on his company’s blog Sunday, David Drummond, Google’s general counsel, noted that a combined Microsoft and Yahoo would have an “overwhelming share” of the instant messaging and Web e-mail markets, and that the two companies run some of the most trafficked portals on the Web.